RBC Downgrades Snap Following Latest Exec Departure

Snap Inc SNAP suffered another executive setback as CFO Tim Stone is leaving the company after just eight months on the job. While the company made it clear his resignation is not due to any disagreement with the company's strategy or direction, it's a "material negative" and notable loss to the company, according to RBC.

The Analyst

RBC Capital Markets' Mark Mahaney downgraded Snap from Outperform to Sector Perform with an unchanged $8 price target.

The Thesis

Stone's resignation marks one of several high ranking c-level executive departures over Snap's two year history of being a public company, Mahaney said in a note. But what's notable in this case is Stone was counted on to play a major role in improving the company's "uneven" fundamentals and execution. His sudden departure makes a fundamental turnaround less likely given his successful background of two decades at Amazon.com, Inc. AMZN.

Snap also issued fourth-quarter guidance and expects fourth-quarter revenue and EBITDA to come at "slightly favorable to the top end" of prior targets, the analyst said.

On one hand, management's update implies EBITDA losses will show a material improvement from $218 million in the first quarter 2018 to less than $75 million. On the other hand, revenue growth deceleration will likely also be seen in the fourth with sales slowing from 72 percent growth in the fourth quarter 2017 to perhaps 35 percent.

Management didn't disclose any daily active user trends which may imply it continued to decline. As such, guidance on its own would have likely prompted a sell-off in the stock similar to what was seen in reaction to the company's third-quarter earnings report.

Price Action

Shares of Snap were trading lower by more than 10 percent Wednesday morning.

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